diff --git a/IPython/html/notebookapp.py b/IPython/html/notebookapp.py
index b216eca..028de8b 100644
--- a/IPython/html/notebookapp.py
+++ b/IPython/html/notebookapp.py
@@ -344,11 +344,6 @@ class NotebookApp(BaseIPythonApplication):
 
     # file to be opened in the notebook server
     file_to_run = Unicode('', config=True)
-    def _file_to_run_changed(self, name, old, new):
-        path, base = os.path.split(new)
-        if path:
-            self.file_to_run = base
-            self.notebook_dir = path
 
     # Network related information
     
@@ -627,10 +622,6 @@ class NotebookApp(BaseIPythonApplication):
         info_file = "nbserver-%s.json"%os.getpid()
         return os.path.join(self.profile_dir.security_dir, info_file)
     
-    notebook_dir = Unicode(py3compat.getcwd(), config=True,
-        help="The directory to use for notebooks and kernels."
-    )
-    
     pylab = Unicode('disabled', config=True,
         help="""
         DISABLED: use %pylab or %matplotlib in the notebook to enable matplotlib.
@@ -648,6 +639,16 @@ class NotebookApp(BaseIPythonApplication):
         )
         self.exit(1)
 
+    notebook_dir = Unicode(config=True,
+        help="The directory to use for notebooks and kernels."
+    )
+
+    def _notebook_dir_default(self):
+        if self.file_to_run:
+            return os.path.dirname(os.path.abspath(self.file_to_run))
+        else:
+            return py3compat.getcwd()
+
     def _notebook_dir_changed(self, name, old, new):
         """Do a bit of validation of the notebook dir."""
         if not os.path.isabs(new):
@@ -942,12 +943,12 @@ class NotebookApp(BaseIPythonApplication):
                 browser = None
             
             if self.file_to_run:
-                fullpath = os.path.join(self.notebook_dir, self.file_to_run)
-                if not os.path.exists(fullpath):
-                    self.log.critical("%s does not exist" % fullpath)
+                if not os.path.exists(self.file_to_run):
+                    self.log.critical("%s does not exist" % self.file_to_run)
                     self.exit(1)
-                
-                uri = url_path_join('notebooks', self.file_to_run)
+
+                relpath = os.path.relpath(self.file_to_run, self.notebook_dir)
+                uri = url_path_join('notebooks', *relpath.split(os.sep))
             else:
                 uri = 'tree'
             if browser:
diff --git a/IPython/html/services/contents/filemanager.py b/IPython/html/services/contents/filemanager.py
index 2030cb4..da91672 100644
--- a/IPython/html/services/contents/filemanager.py
+++ b/IPython/html/services/contents/filemanager.py
@@ -23,7 +23,13 @@ from IPython.html.utils import is_hidden, to_os_path, url_path_join
 
 class FileContentsManager(ContentsManager):
 
-    root_dir = Unicode(getcwd(), config=True)
+    root_dir = Unicode(config=True)
+
+    def _root_dir_default(self):
+        try:
+            return self.parent.notebook_dir
+        except AttributeError:
+            return getcwd()
 
     save_script = Bool(False, config=True, help='DEPRECATED, IGNORED')
     def _save_script_changed(self):
diff --git a/IPython/html/services/kernels/kernelmanager.py b/IPython/html/services/kernels/kernelmanager.py
index d135b13..e1bd5c2 100644
--- a/IPython/html/services/kernels/kernelmanager.py
+++ b/IPython/html/services/kernels/kernelmanager.py
@@ -12,7 +12,7 @@ import os
 from tornado import web
 
 from IPython.kernel.multikernelmanager import MultiKernelManager
-from IPython.utils.traitlets import Unicode, TraitError
+from IPython.utils.traitlets import List, Unicode, TraitError
 
 from IPython.html.utils import to_os_path
 from IPython.utils.py3compat import getcwd
@@ -24,7 +24,15 @@ class MappingKernelManager(MultiKernelManager):
     def _kernel_manager_class_default(self):
         return "IPython.kernel.ioloop.IOLoopKernelManager"
 
-    root_dir = Unicode(getcwd(), config=True)
+    kernel_argv = List(Unicode)
+
+    root_dir = Unicode(config=True)
+
+    def _root_dir_default(self):
+        try:
+            return self.parent.notebook_dir
+        except AttributeError:
+            return getcwd()
 
     def _root_dir_changed(self, name, old, new):
         """Do a bit of validation of the root dir."""